Foreign direct investment and the ICT cluster In Costa Rica: chronicle of a death foretold?

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Costa Rica has been successful in attracting high-tech foreign direct investment (FDI). An aggressive FDI-assisted development strategy was pursued by the country in the 1980s as a response to the economic crisis; yet there are serious concerns about the effectiveness of such strategy from a development point of view. In this paper, we focus on the effects of the FDI-assisted development strategy on the Costa Rican ICT companies. We present such strategy since the decade of the 1990s and the characteristics of the companies in the ICT sector. Based on this presentation, we discuss the positive and negative effects of the FDI strategy on local software firms, which are the majority of the indigenous ICT firms. A balance of the situation shows that the current FDI-assisted development strategy presents more negative effects than positive ones to local ICT companies. By large, this is due to the lack of spillover effects from MNCs to indigenous ICT firms. We present factors able to explain the existence of few spillover effects and provide recommendations for public policy to increase the possibilities for obtaining more positive benefits from a high-tech FDI-assisted development strategy. The understanding of such factors and the articulation of effective policies capitalizing on them are fundamental to avoid Costa Rica falling victim of its own success.